Transaction gains lead U.S. sales rebound at Tim Hortons

OAKVILLE, ONT. — After sustaining a decline of 0.5% in same-store sales in the United States during the first quarter of fiscal 2013, Tim Hortons, Inc. bounced back in the second quarter, posting a 1.4% increase in U.S. same-store sales in the quarter ended June 30. Cynthia Devine, chief financial officer, attributed the increase to transaction gains.

“Breakfast, hot beverages and panini sandwiches all had positive impacts on our sales,” Ms. Devine said during an Aug. 8 conference call with analysts. “We expanded our breakfast selection with the introduction of the jalapeño cheese flat bread breakfast panini.”

Marc Caira, president and chief executive officer, called the improvement “a step in the right direction after a rare decline,” and iterated his plan to make the United States “a must win market” for Tim Hortons.

“Based on the dynamics of the market, and the footprint we already have created, I believe the U.S. represents an opportunity for significant long-term earnings growth for us,” Mr. Caira said. “Our sales progression in many U.S. markets mirrors that of many Canadian markets in the early development stages. However, overall sales volumes in these markets do not yet match our larger more developed markets in the U.S. We are committed to succeeding in the U.S. market.”

Expressing his dissatisfaction with the returns generated to date, Mr. Caira said Tim Hortons has its sights set on new and different models, and different ways of doing things.

“In this context we have begun to accelerate our efforts in the U.S. by attracting well-capitalized partners to complement our development approach,” he said. “We believe that this will support our initiatives to improve returns, including work in unboxed economics, increasing densities in core growth markets, innovation that is differentiating and continued brand building. We expect this change in our approach to result in reduced capital being deployed in the U.S. beginning in 2014.”

Net income at Tim Hortons Inc. in the second quarter ended June 30 was C$123,736,000 ($120,187,000), equal to C$0.81 per share on the common stock, up 14% from C$108,067,000, or C$0.70 per share, in the second quarter of fiscal 2012. The company said the increase reflected higher operating income, as well as a lower effective tax rate due to discrete items that occurred during the quarter.

Net revenues rose 2% to C$800,139,000 ($777,293,000) from C$785,581,000. Same-store sales increased 1.5% in Canada and 1.4% in the United States.

Operating income in the second quarter of fiscal 2013 rose 11% to C$176,579,000 from C$158,839,000.

For the six months ended June 30, net income was C$209,907,000, or C$1.38 per share, up from C$196,846,000, or C$1.27 per share, in the same period a year ago. Net revenues were C$1,531,676,000, up from C$1,506,865,000.